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Sunday, July 26, 2009

Darden's Response to the Crisis

It was inevitable that top business schools wouldn't stand still after witnessing a succession of threats to the financial system the past two years. Several schools announced earlier this year how they intended to respond to the financial crisis, change curriculum, provide analyses, or produce case studies of specific events.

A team of NYU-Stern professors just published a detailed, comprehensive analysis of the events before, during and after crisis. Restoring Financial Stability: How to Repair a Failed System(Wiley Finance) is the result of contributions from the team and offers a chronicle of what happened, detailed analyses of what happened, and solutions for how a bursting of the financial bubble can be avoided in the future. The book takes an academic approach and could be an anchor text for future b-school students who want to understand 2008 more thoroughly.

Meanwhile, Virginia-Darden has shown how a top school can respond not just with useful texts and new case studies, but how it can "exploit" the crisis by teaching it to students and strategically injecting all aspects of the b-school experience with analysis, solutions, lessons, and even reflection.

For example, it has hosted panels featuring top professors, alumni and other business leaders--all discussing the crisis and proposing next-step solution. Some of them are available on YouTube.

It has introduced courses that address the crisis in specific ways. A course "Hot Topics in Finance" invited alumni from banks to describe their experiences the past two years. A course in securitization showed how a flood of mortgage securitization contributed to the crisis and explained how liquid markets can become illiquid overnight.

Even such courses as "First-Year Ethics" and "Responsible Decision-Making" are covering crisis-related topics and highlighting where management at certain institutions might have misunderstood risks they took or have been misguided by compensation programs that rewarded excessive risk-taking.

The demise of Bear Stearns and Lehman, the collapse of AIG, and the Government's takeover of Fannie Mae and Freddie Mac provide ample opportunities for professors to prepare case studies and let students dissect events and second-guess decision-makers at those firms. Darden professors have written several related cases.

"Bear Stearns and the Seeds of Its Demise" (by Susan Chaplinsky) presents the series of events that led to Bear's collapse. And it plants students in the middle by posing them as a hedge fund interacting with Bear two months before JPMorgan acquires it over a weekend in March, 2008. The case challenges students to decide what they would do, based on the facts at hand and the rumors engulfing Bear's management.

Darden's career-services office has also stepped up by assisting students in interview preparation at financial institutions and by holding workshops for alumni in financial services.

Darden isn't the only top school to have responded in a focused, purposeful way. Other top schools, too, are tweaking courses in ethics, finance and business policy and preparing new cases or introducing crisis-specific subjects. Darden's response is an example of how top schools can turn an upheaval in markets and the economy into learning opportunities for students. And it shows how b-schools are already scrambling to present solutions to help avoid this kind of collapse in the future.